Please note: High-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.
Times can be tough, but that doesn’t mean you should settle for just any short-term loan you can find. Finding a legitimate lender doesn’t have to be difficult. All you need is a baseline for finding a good deal.
What is a legit short-term loan?
A legit payday loan is one that is offered to you legally. The lender needs to abide by the regulations set by the Financial Conduct Authority (FCA). Short-term loans can be applied for online and in-store but fall under the same regulations.
Generally, short-term lenders have more relaxed eligibility criteria than banks and other lenders. You’ll be able to apply for a short-term loan if you have bad credit, are on a lower income or receive government benefits. However, the relaxed eligibility criteria does mean rates and fees are higher than other loans.
Lenders still have to stick to the rules set by the FCA – including a cap on the daily interest and one-off fees they can charge you.
Short term loan options
The 'ability to repay' rule
Lenders must make a reasonable judgment on an applicant’s ability to repay the loan. The lender should assess factors such as income, housing expenses and existing debt in determining if the applicant can reasonably repay the loan.
If a lender doesn’t ask you for any of that information or doesn’t attempt to evaluate if you can afford the loan, the lender probably isn’t legit. Since there are plenty of lenders that check, you should move on and find one that combines good terms with a strong lending ethic.
5 ways to tell a short-term lender is legit
The following should help you find legit short-term loans easily:
- FCA authorisation. If the lender you are borrowing from is legitimate it should be in the FCA register.
- Contact details. Take some time to find a lender’s contact details. If a lender provides no more than a contact form or an email address, see how responsive it is before you apply. A legitimate short-term lender shouldn’t shy away from providing a physical address, phone support or live chat.
- Fees and charges. Direct lenders of legit short-term loans are legally required to be upfront about the fees and charges you have to pay during the loan term, and they adhere to all given maximum limits. The loan contract should clearly set out all applicable fees and charges.
- Use money for any reason. Legit short-term lenders don’t place any stipulations on how you can use loan funds as long as you’re using the money for a legal reason. If your lender tries to dictate how you can use your loan funds, it might not be legit.
- Doesn’t require money upfront. One of the biggest red flags when researching a lender is if it requests money upfront. Origination fees are paid out of your loan amount, and you shouldn’t have to pay anything before you borrow.
Even legit short-term loans can be costly
Whether you’ve decided on a payday loan or an instalment loan, you may face a bigger expense than you initially expected. Short-term loans are designed to be repaid quickly. If you’re unable to pay on the due date, you’ll be charged more fees and extra interest, which can quickly increase the total cost of your loan.
As with every lending option, always be sure you can repay what you borrow.
More considerations before you apply
Take some time to go through the loan’s terms and conditions, as this document tells you how much you may have to pay in different circumstances such as rollovers and late payments.
You’ll also have to pay additional fees if you make a late payment, and your lender will report your missed payments to credit bureaus. Reconsider applying if you think you may have troubles repaying your borrowed funds.
Don has a costly vet billImagine this scenario: Don knows how costly payday loans can be, but after receiving a large bill from the vet, he realises he has no other choice but to take one out. Rather than applying with the first one he finds, Don chooses to compare different lenders.
He checks the FCA regulations and finds that some are offering much more than they’re legally allowed. Others claim that they don’t conduct credit checks or have guaranteed acceptance.
Don passes over these and instead picks a lender that clearly outlines its fees and has a good customer service line. He borrows £200 and works the extra cost into his budget for the next month.
Knowing what to look for in a legit lender is just as important as understanding common scams. Once you’ve checked government regulations, know how much you need to borrow and have an idea how to repay, start comparing your options to be sure you’re getting a good deal.
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